Laureate Education, Inc. · NASDAQ:LAUR
Laureate Education — Merger or Acquisition (March 2007)
39 slides from Laureate Education's merger presentation, Mar 28, 2007
Slide 1: Investor Presentation March 2007
Investor Presentation March 2007
Slide 2: Forward-looking statements
This presentation includes information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements may involve risk and uncertainties. Although the Company believes that the e
Slide 3: Important Information has been Filed with the SEC
In connection with the proposed merger agreement, Laureate has filed a preliminary proxy statement with the Securities and Exchange Commission. Investors and security holders are advised to read the definitive proxy statement when it becomes available, because it will contain important information a
Slide 4: Agenda
Introduction Valuation Business Risks Process Summary Agenda
Slide 5: Transaction Overview
Transaction Overview AV/EBITDA = 18.7x P/E = 30.1x LTM Transaction Multiples(3): CEO Douglas L. Becker and a KKR-led consortium of equity investors including Citigroup Private Equity, S.A.C Capital Management, SPG Partners, Bregal Investments, Caisse de dépôt et placement du Québec, Sterling Capital
Slide 6: The Board Believes the Merger is in Stockholders' Best Interests
The Board of Directors Believes that the Merger is in Stockholders’ Best Interests An all-cash transaction at $60.50 gives certainty of value at a high multiple of 18.7x EBITDA A premium of over 20% to unaffected market price Takes advantage of favorable financing markets and availability of private
Slide 7: Board Believes Merger is in Best Interests: Rigorous Sale Process
The Board of Directors Believes that the Merger is in Stockholders’ Best Interests Rigorous and structured sale process Board authorized Mr. Becker to investigate what would be involved in a transaction between the Company and private equity investors Mr. Becker took over four months to raise requir
Slide 8: Agenda
Introduction Valuation Business Risks Process Summary Agenda
Slide 9: $60.50/share Offers Certainty of Value at Attractive Multiple and Premium
$60.50/share Offers Stockholders Certainty of Value at an Attractive Multiple and Premium High multiple relative to EDMC Most comparable transaction EDMC viewed as lower risk and easier to finance given U.S. operations EDMC business model is less capital intensive High multiple relative to other lev
Slide 10: Transaction Multiples: Laureate versus EDMC
Transaction Multiples(1) EDMC Laureate x Despite Similar Long-Term Growth Prospects, Laureate Achieved Higher Transaction Multiples Relative to EDMC 61% 53% Notes: (1) Laureate multiples based on 2006 Pro Rata EBITDA of $196.6MM and 2007 management base case Pro Rata EBITDA of $247.9MM Long-term EPS
Slide 11: Laureate's EBITDA Multiple Exceeds Recent LBO Transactions
Laureate’s EBITDA Multiple Exceeds Recent LBO Transactions(1) LTM EBITDA Multiple x Notes: (1) U.S. LBO transactions between $2Bn – $9Bn, January 1, 2003 – March 15, 2007, excluding REITS Median 10.6x Laureate LBO 18.7x Source: Capital IQ and Thomson Company MGM Extended Stay America Insight Comm. W
Slide 12: Unprecedented Equity Contribution Level in an LBO
Unprecedented Equity Contribution Level in an LBO Transaction Equity Contribution (1) % Source: Proxy statements Notes: (1) U.S. LBO transactions between $2Bn – $9Bn, January 1, 2003 – March 15, 2007, excluding REITS (2) Equity contribution calculated as a percentage of total aggregate value Median
Slide 13: Above Average Premium Compared to Recent LBOs
Laureate’s Above Average Premium Compares Favorably to Recent LBO Transactions Premium, 4-weeks Prior to Announcement(1) % Source: Thomson Financial Notes: (1) U.S. LBO transactions between $2Bn – $9Bn, January 1, 2003 – March 15, 2007, excluding REITS (2) MGM’s premium was -26% Median 21% Laureate
Slide 14: Merger Price Represents Premium of More than 20%
Merger Price: $60.50 $60.50 Merger Price Represents a Premium of More than 20% Over Various Time Periods Leading up to the Announcement Implied Offer Premiums Stock Price A 12 Month Avg.(1) 26% B 6 Month Avg.(1) 25% C 3 Month Avg.(1) 19% D 1 Month Avg.(1) 21% E Sep. 8, 2006 29% F 30 Days Prior 24% G
Slide 15: Stock Traded Up in Advance of Announcement
Stock Traded Up in Advance of Announcement 35,368 12/27/06 – 1/25/07 1,149 9/11/06 – 12/27/06 8,330 6-Month Average Option Trading Volume Call Option Trading Volume (000’s) Laureate: $53.92 (+10.5%) January 5, 2007: Board authorized negotiation of definitive agreement at $60.50/share Education Servi
Slide 16: Offer Captures Upside of Analysts' Price Targets
Offer Captures Upside of Analysts’ Future Stock Price Targets and Eliminates Downside Risks Laureate Analyst Price Targets(1) Laureate Analyst Quotes Valuation Looks Reasonable. The deal values LAUR shares at 17.8x our estimated TTM EV/EBITDA and 33.6x TTM EPS (ending September 2006). The Laureate t
Slide 17: Event Risk Can Have Dramatic Impact on Stock Price
Event Risk Can Have Dramatic Impact on Stock Price Stock Price $/Share ($) Laureate announces weak inquiries in online division 4/27/2006 Source: FactSet Stock down ~$9, or 19%, over 5-month period 40 45 50 55 60 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06
Slide 18: Prior Periods of Volatility Impaired Stock Performance
$11 IPO (Split-Adjusted) ($) 6 Years to Return to 1998 Stock Price Prior Periods of Volatility and Change have Impaired Stock Performance Sale of Prometric Division 3/3/2000 Sale of K-12 Division 3/3/2003 Stock Price $/Share Source: FactSet 0 10 20 30 40 50 60 70 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 D
Slide 19: Agenda
Introduction Valuation Business Risks Process Summary Agenda
Slide 20: $60.50 De-risks the Business Challenges Ahead
$60.50 “De-risks” the Business Challenges Ahead Laureate faces company-specific and broader industry challenges in meeting its growth targets Increasing volatility and greater uncertainty in business Laureate is much more capital intensive than its U.S. peers Strong likelihood that tax rate increase
Slide 21: Growth Challenges
Growth Challenges Slower enrollment growth in existing markets Increased exposure and reliance on emerging markets Potential expansion delays in new regions (e.g., China and India) Growth in the Company’s Latin America operations necessitates hiring managers who are unproven in Laureate’s business I
Slide 22: The 2010 Vision Implies Accelerating EPS Growth
The 2010 “Vision” Implies Accelerating EPS Growth $/Share EPS Growth Rate: 19% 21% 29% 29% I/B/E/S Estimates Source: I/B/E/S estimates as of March 26, 2007 Notes: (1) See Reg G reconciliation at the end of this presentation for 2003 – 2005 EPS figures (2) Excludes $0.13 expense from minority share p
Slide 23: Business Matures, Must Enter New and More Volatile Countries
As Business in Existing Countries Matures, Laureate Must Enter New and More Volatile Countries Total Campus-Based Enrollment Growth Excluding Acquisitions, as Reported Source: Company filings 20% 11% 16% 20% 0% 5% 10% 15% 20% 25% 2003 2004 2005 2006
Slide 24: External Growth Becoming More Expensive
External Growth Becoming More Expensive as Competition for Education Assets Increases Source: Thomson Financial; includes all mergers announced from 1980 to 2006 in which target nation was non-USA/Canada International M&A Activity in Post-Secondary Education Space(1) Number of Transactions Per Year
Slide 25: Increasing Competition in 2006 and Beyond
2006 and Beyond 2003 Competitors were local and weak Few international competitors Asia New Oriental (~$1.5 billion USD market capitalization) Raffles, Singapore (~$1.6 billion USD market capitalization) Barings Private Equity potentially enters China market Brazil Anhanguera—raised over $200 millio
Slide 26: Increasing Volatility and Greater Uncertainty
Increasing Volatility and Greater Uncertainty Increasing exposure to non-investment grade countries High concentration in Latin America 68% of Laureate’s 2006 operating profit before G&A(1) Future growth dependent on Brazil and China Change in student mix Shorter programs enjoying greater rates of g
Slide 27: More Revenue from Riskier Countries
More Revenue from Riskier Countries Percentage of Total Revenue by Country Risk Rating(1) Investment Grade Non-Investment Grade <1% 14% Source: Moody’s (2/2/2007) and S&P (1/8/2007); Non investment grade includes Brazil, Costa Rica, Ecuador, Honduras, Panama, Peru and Turkey Note: (1) Includes unide
Slide 28: Lower Visibility as Four-Year Students Decline
Lower Visibility as % of Four-Year Students Declines Typically, 4 Years or More in Length Typically, 2 Years in Length Percentage of Total Students (Online and Campus-Based) by Type 29% Working Adult, Graduate and Online Undergraduate 71% 39% 61% (14%) 34% 0% 20% 40% 60% 80% 100% 2003 2006
Slide 29: Growth Model Requires Substantial Capital
Growth Model Requires Substantial Capital Historical ROIC(1) Laureate Analyst Quotes Laureate continues to generate inferior returns on invested capital and incremental invested capital due to its high rate of investment. As of 3Q06, Laureate’s ROIC were 8.2%, versus 12.4% in 3Q05 and a peer group a
Slide 30: Valuation Highly Sensitive to Tax Rate
Discounted Future Share Price(1) 2010 Potential Tax Rate (%) 2010E EPS (Post-FAS 123) ($) 10 5.08 20 4.46 30 3.85 ($) Valuation Highly Sensitive to Tax Rate As Funds Move Between Countries, Tax Rate Will Increase Notes: (1) Based on management case; 2010 EPS at 2009 Forward P/E Multiples of 17.0x-19
Slide 31: Agenda
Introduction Valuation Business Risks Process Summary Agenda
Slide 32: Special Committee and Other Independent Directors
David Wilson (Special Committee Chairman) President and CEO of Graduate Management Admission Council (GMAC) since 1995 Name Background Special Committee Other Independent/Disinterested Directors Excluded From All Deliberations James McGuire President of NJK Holding Corporation since 1992 R. William
Slide 33: Special Committee Rejected Three Offers Before Accepting $60.50
The Special Committee Rejected Three Offers Before Accepting $60.50 Offer Price $/Share ($) 3% 5% 2% 9/8/06 Stock Price $46.97 60.50 1.25 55.00 1.50 56.50 2.75 59.25 45.00 47.00 49.00 51.00 53.00 55.00 57.00 59.00 61.00 63.00 9/11/2006 12/6/2006 12/13/2006 12/27/2006
Slide 34: Special Committee Oversaw a Rigorous and Structured Process
The Special Committee of the Board of Directors Oversaw a Rigorous and Structured Process Board authorized Mr. Becker to investigate what would be involved in a transaction between the Company and private equity investors Board formed Special Committee which retained its own advisors Mr. Becker agre
Slide 35: Active Go Shop Process Did Not Result in Superior Proposal
Active “Go Shop” Process did not Result in a Superior Proposal 67 strategic and private equity investors contacted during “go shop” period 58 financial firms 9 strategic investors 57 parties received marketing materials consisting of: Terms of the proposed transaction Key investment considerations P
Slide 36: Board Believes Merger is in Stockholders' Best Interests
The Board of Directors Believes that the Merger is in Stockholders’ Best Interests The transaction price of $60.50 per share in cash represents an attractive and certain value for Laureate’s stockholders The proposed acquisition of Laureate by an investor group led by Doug Becker was the result of a
Slide 37: Q&A
Q&A
Slide 38: Appendix
Appendix
Slide 39: Regulation G EPS Reconciliation
86,360 61,664 42,154 Pro forma income from continuing operations 52,028 49,016 46,229 (19,667) (15,323) (13,829) 1.66 1.26 0.91 106,027 76,987 55,983 Subtotal - (5,169) - - (6,014) - - - 4,564 - - 6,855 - - 22,158 - - 18,677 - - (3,694) 106,027 88,170 7,423 Income from continuing operations 2005 200
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